On Friday, major North American stock markets closed relatively unchanged.
In the U.S., the Dow Jones Industrial Average lost 0.11 per cent, the S&P 500 index declined 0.15 per cent, and the Nasdaq composite index advanced 0.09 per cent.
In Canada, the S&P/TSX composite index declined 13 points, or 0.08 per cent. There were 105 securities in the TSX Index that advanced, 132 securities declined in value, and 13 stocks closed the day unchanged.
Year to date, the TSX Index is up 1.64 per cent. In the U.S., the Dow Jones Industrial Average is up 5.74 per cent year-to-date, the S&P500 index is up 6.79 per cent, and the Nasdaq composite has rallied 13.71 per cent.
On today's TSX Breakouts report, there are 27 stocks on the positive breakouts list (stocks with positive price momentum), and 39 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a security that appeared on the positive breakouts list last week. The company's share price is up over 12 per cent so far this year and analysts anticipate further upside. The stock has seven buy recommendations with the Street anticipating a price return of nearly 14 per cent and a total return (including the dividend) of 17 per cent over the next year. The company offers its shareholders an attractive 3.7 per cent dividend yield. Management has hiked its dividend annually since 2013 and there is room for future dividend increases given its conservative payout ratio. In addition, the company will report strong earnings growth driven by its recent acquisitions. The security I am referring to is Parkland Fuel Corporation (PKI-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Red Deer, Alta.-based Parkland Fuel Corporation is a marketer of fuel and petroleum products such as gasoline, diesel, propane, and heating oil to residential and business customers across North America.
Management is focused on both organic and acquisition growth, and announced a major acquisition last month. On April 18, management announced plans to acquire Chevron Canada's downstream fuel business. This purchase includes 129 Chevron-branded retail service stations primarily located in the Greater Vancouver Area, along with a refinery and three marine fueling stations located in B.C. The president and chief executive officer Bob Espey stated in the news release, "This accretive acquisition further strengthens our supply-focused business model and adds significant scale with the premier Chevron retail brand and network in British Columbia." Management anticipates the acquisition will deliver between $35-million and $50-million of annual run-rate synergies. The deal is anticipated to be completed in the fourth quarter.
Last year, the company announced its agreement with Alimentation Couche-Tard Inc. to acquire the majority of CST Brands, adding approximately 490 dealer and commissioned agent retail sites. The deal is expected to be completed this quarter. Mr. Espey indicated on the first quarter conference call that, "To underpin the importance of these two transactions, the synergies on the two combined (purchases) is expected to be between $60-million and $75-million over the next 3 years."
Last month, in an investor presentation, management highlighted with these two acquisitions, "Parkland solidifies its position as Canada's largest fuel retailer by site count" supplying over 1,800 service stations, and will become the, "second largest convenience store operator in Canada."
After the market closed on May 2, the company reported better-than-expected first quarter financial results. Parkland reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $70-million, up 17 per cent year-over-year, and exceeding the consensus estimate of $67-million. The stock price rallied 0.8 per cent the following trading day on high volume with over 1.3-million shares traded. To put this in perspective, the three-month historical daily average trading volume is approximately 560,000 shares.
Dividend policy
The company has announced annual dividend increases in March of every year since 2013. The company pays its shareholders a monthly dividend of 9.62 cents per share, or $1.1544 per share on a yearly basis. This equates to an annualized dividend yield of 3.7 per cent.
The company provides shareholders with the option of participating in the enhanced dividend reinvestment plan, allowing shareholders to repurchase shares with their dividend at a 5 per cent discount to the volume weighted average price.
In the first quarter, the adjusted distributable cash flow payout ratio was 60 per cent, down from 68 per cent during the same period last year.
Analysts' recommendations
Analysts are bullish on the stock. There are eight buy recommendations and one 'sector perform' recommendation (from the analyst at RBC Capital Markets).
The nine firms providing research coverage on the company are as follows in alphabetical order: AltaCorp Capital, Canaccord Genuity, CIBC World Markets, EVA Dimensions, Haywood Securities, National Bank Securities, RBC Capital Markets, Scotia Capital, and TD Securities.
Revised recommendations
This month, numerous analysts revised their expectations –all higher. A top ranked analyst, Mike Van Aelst from TD Securities, raised his target price to $39 from $34. Trevor Johnson, the analyst from National Bank Securities increased his target price by $3 to $37. Derek Dley from Canaccord Genuity bumped his target price to $38 from $32. Kevin Chiang, the analyst from CIBC World Markets, lifted his target price by $2 to $35. Benoit Laprade from Scotia Capital raised his target price to $34.75 from $30. Sabahat Khan, the analyst at RBC Capital Markets, increased his target price to $32 from $31. Dirk Lever from AltaCorp Capital increased his target price to $35 from $32.50. Finally, Neil Fonseca from EVA Dimension lifted his recommendation to an 'overweight' from a 'hold' but does not provide a target price.
Financial forecasts
The Street is forecasting EBITDA of $337-million in 2017 rising nearly 52 per cent to $511-million in 2018. The consensus earnings per share estimates are 79 cents in 2017, and forecast to increase 28 per cent to $1.01 in 2018. Management is forecasting normalized run-rate EBITDA of approximately $660-million in 2019.
Earnings revisions have been positive and large for 2018 due to the recently announced acquisition of Chevron Canada's downstream fuel business. For instance, three months ago, the consensus EBITDA estimates were $365-million for 2017 and $413-million for 2018.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 9.6 times the 2018 consensus estimate, above its three-year historical average of 9.1 times but below its peak multiple of approximately 11 times during this time period.
The average 12-month target price is $35.86, implying the share price has nearly 14 per cent upside potential over the next year. Target prices range from a low of $32 (at RBC Capital Markets) to a high of $39 (at TD Securities), suggesting upside potential of between 1 per cent and 24 per cent. Individual target prices provided by eight firms are as follows in numerical order: $32, $34.75, two at $35, $35.25, $37, $38, and $39.
Insider transaction activity
Looking back over the past three months, there has not been any buying or selling activity in the public market reported by insiders.
Chart watch
Year to date, the share price has rallied over 12 per cent, making it the fourth best performing stock in the S&P/TSX composite energy sector index (out of a total of 51 members).
The share price faces initial overhead resistance around $32. If the stock price can break above this level, the share price could rally up to around $35.
Should the share price retreat, there is initial support around $30, close to its 50-day moving average (at $29.23). Failing that, there is support around $28, which is near its 200-day moving average (at $28.45).
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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.